Oil firms accused of failing to disclose climate risks

Two oil and gas companies have been reported to the UK financial regulator for allegedly failing to disclose climate change risks.

In letters to the Financial Reporting Council (FRC), environmental law organisation ClientEarth has requested intervention to correct “defective reporting” by Cairn Energy and SOCO International.

The FRC is the regulator responsible for monitoring compliance with relevant reporting requirements.

In the UK, the Companies Act 2006 sets out a legal framework for companies to report material risks to the business.

ClientEarth claims the two exploration and development companies “make scant references” to climate-related risks in their annual reports, resulting in investors “not fully informed of risks” to the business.

It is calling on the FRC to take “decisive action” and oblige the companies to report on climate-related risks to their business.

ClientEarth Lawyer Alice Garton said: “For companies operating in the sector – with business models and strategies which rely on the continued use of hydrocarbons – it is inconceivable that climate risk is not a material and significant factor for these companies.

“Failing to adequately disclose climate risk is failing to mention one of the most important risks facing the company and means the annual report is only telling the positive side of the story. This information is vital for investors. Without it, they simply cannot make a fully informed investment decision.”

Responses

Cairn Energy said corporate responsibility is key to its business and it takes its commitments to responsible and transparent reporting “very seriously”.

“Cairn Energy PLC is a constituent of the FTSE4Good whereby the company is selected and screened in accordance with transparent and defined environmental, social and governance criteria. The index is designed to identify companies with recognised corporate responsibility practices.”

SOCO International “strongly refutes” the allegations and is reviewing the materials provided by ClientEarth “in detail”.

It added: “Climate change is a key consideration for SOCO and its 2015 Annual Report includes reporting on environmental impacts.

“After careful consideration by the Board, with the guidance and advice of the company’s auditors and in keeping with its sector peers, the judgment of the directors of SOCO was not to include climate change as a separate risk among the principal risks to the company’s strategy and associated principal risks that underpin the Group’s three-year forecast and scenario testing in 2015.

“The principal risks listed in the strategic report include underlying business risks, uncertainties and trends potentially associated with climate change, as identified by ClientEarth, including environmental impacts, commodity prices and operating costs.”